The Foreign & Commonwealth Office has published guidance detailing the UK Government’s intended approach to sanctions exceptions and licences after Brexit. Sanctions exceptions and licences are mechanisms through which restrictive measures imposed by sanctions may be relaxed in specific circumstances. The guidance comes as the Sanctions and Anti-Money Laundering Bill (the “Bill“) reaches the final stages of the legislative process. The Bill has passed through both the House of Lords and the House of Commons, and is currently in the “ping pong” stage.

Although the UK’s approach will largely mirror that already adopted in respect of the EU sanctions regimes in force at the moment, paragraph 4 of the guidance indicates that the UK Government’s approach to sanctions licensing will involve more reliance on general licences, which are currently very limited under the EU regime. The effect of a general licence is that multiple parties will be able to undertake specified activities in certain situations in which sanctions would ordinarily apply, without the having to apply for a specific licence naming those parties. Below is a summary of the UK Government’s intended approach towards the main areas in which sanctions licensing/exemptions may apply.

Sanctions involving asset freezes

The main licensing grounds relating to asset freezing sanctions will include:

Basic needs

Under EU law, licences may be issued to authorise funding for the basic needs of designated persons. The test as to what may be paid for with otherwise frozen assets is a “necessity test“, which includes food, rent, medicine, taxes and utilities.

The UK Government intends for the necessity threshold to continue to apply after Brexit, however it plans to split what counts as a necessity for individuals and legal entities into two distinct licensing grounds.

Legal fees

The EU currently allows for licences to be issued for the payment of reasonable professional fees and expenses associated with legal advice.

The UK Government intends to retain this licensing ground.

Routine holding and/or maintenance

EU legislation enables licences to be issued for the payment of fees or service charged for routine holding or maintenance of frozen funds, in order to maintain the value of the assets.

The UK Government intends to “make clear that services provided must be reasonable and not excessive, ensuring value for money“, however it provides no detail on what this means.

Further, it is proposed that insurance is also included under this licensing ground, to ensure that assets can be appropriately insured against risk.

Extraordinary expenses

Under the EU regime, a licence may be issued for payments by designated persons that cannot be easily anticipated and are not recurring.

The UK Government intends to keep this licensing ground, however the ground must be both “extraordinary” and an “expense“. It proposes to set out more detailed guidance as to the parameters of this ground so as to avoid it becoming a catch-all. This may assist companies in utilising this licensing ground which is, in our experience, rarely used at present.

Prior court orders

The EU allows for licences to be issued to permit the release of a designated person’s frozen assets in order to satisfy obligations stemming from court decisions made prior to the designation.

The UK Government intends to keep this ground, and amend it to also include provision for judgments resulting from proceedings in place at the time of designation. However, this ground shall not be extended to cover proceedings initiated after designation.

Prior contracts

The licensing ground under EU law which permits the release of frozen funds to make payment under a contract arising prior to the designation of a person shall be retained after Brexit.

Humanitarian activities

This licensing ground permits the release of frozen funds for humanitarian purposes. The guidance states that the UK Government may choose to grant both individual and general licences in this area after Brexit.

Diplomatic activities

Under the current EU law, licences may be granted to permit funds to be released for diplomatic or consular missions. This ground will be retained after Brexit.

Sanctions placing restrictions on financial activities and investment

The guidance states that the UK Government intends to generally continue to apply the current EU licensing grounds and authorisations in relation to those sanctions regimes prohibiting certain financial activities and ownership of entities. These include (i) a prior contracts ground similar to that detailed above, in order to limit undue consequences for business; and (ii) the licensing grounds which allow for “investment, ownership or control of entities undertaking projects” exclusively for the public benefit.

Sanctions placing restrictions on the export or movement of goods and the provision of services

The UK Government intends to maintain the current EU licensing grounds in respect of those sanctions prohibiting the export or movement of goods, and the provisions of services associated with those goods. Aside from a prior contracts ground as discussed above, these licensing grounds generally apply to humanitarian matters such as peacekeeping missions and the provision of humanitarian goods and services.

Travel bans

The Bill will provide the UK Government with powers to exempt individuals from the effects of travel bans. There are two proposed mechanisms allowing this. Firstly, there may be exceptions which are to be used in circumstances that are foreseeable or have been agreed with international partners in advance (such as peace talks). Secondly, the Secretary of State may make a direction, which is more flexible and may be made at short notice. The process regarding exemptions from UN travel ban designations will remain the same.

National security and serious crime

The Bill allows for certain exceptions in respect of activities carried out for the purposes of national security or for the detection of serious crime.

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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.Herbert Smith Freehills LLP is authorised and regulated by the Solicitors Regulation Authority.